3. continued to thrive in the early twenty-first century and today
earns more than $15 billion in revenue, owns 465 stores, and
employs 91,000 workers (compared to 19 workers in 1980).
John Mackey continues to lead Whole Foods as the company’s
CEO.
From the onset, Mackey desired to create a company that
incorporated the values of healthy living and conscious
capitalism. Conscious capitalists believe “that a more complex
form of capitalism is emerging that holds the potential for
enhancing corporate performance while simultaneously
continuing to advance the quality of life for billions of
people.” According to Mackey, businesses should seek to
balance the needs of all stakeholders rather than simply try to
earn a profit. As a result, Whole Foods places the customer as
first priority. The company adopted criteria such as the Whole
Foods Trade Guarantee and the Eco-Scale Rating system to
ensure customers receive the highest quality organic products.
Although Whole Foods sells a number of brands, it also sells its
own private labels including its 365 Everyday Value. Its 365
Everyday Value private brand is targeted toward customers who
desire high-quality organic food but who also wish to save
money. Because organic food usually costs more, the 365
Everyday Value is meant to appeal to more budget-conscious
consumers. To target more of this market, Whole Foods opened
a new series of stores called 365 by Whole Foods. Utilizing a
smaller store format, 365 by Whole Foods sells organic products
at lower prices. 365 by Whole Foods also partners with local
independent businesses in an initiative called Friends of 365 to
feature their products in stores. Whole Foods is also expanding
into the restaurant industry, opening 30 full-scale restaurants in
addition to its quick-service eateries.
However, although Whole Foods recognizes the importance of
customers, it also considers the health and well-being of its
other stakeholders, including employees and communities. Its
mission statement consists of three goals:
· (1)
4. whole foods,
· (2)
whole people,
· (3)
and whole planet.
According to its mission statement, Whole Foods has adopted a
stakeholder orientation to guide its activities. This approach,
along with a strong adherence to its core values, has been
crucial in establishing Whole Foods’s reputation as a firm
committed toward benefiting stakeholders.
14-3 Mission Statement and Core Values
Whole Foods ’ s core values, described in Table 1, are an
outreach of its mission statement. Whereas the mission
statement provides a general direction, Whole Foods’s values
give additional details about how it is turning its mission into a
reality. The core values also provide an idea of how Whole
Foods ranks certain stakeholders. Whole Foods calls
the company values its Declaration of Interdependence to
emphasize how interdependent the company is upon its
stakeholders.
Table 1
Whole Foods Market’s Core Values
We Sell the Highest Quality Natural and Organic Products
Available
We Satisfy, Delight, and Nourish Our Customers
We Support Team Member Excellence and Happiness
We Create Wealth through Profits and Growth
We Serve and Support Our Local and Global Communities
We Practice and Advance Environmental Stewardship
We Create Ongoing Win-Win Partnerships with Suppliers
We Promote the Health of Our Stakeholders through Healthy
Eating Education
Source: Whole Foods, “Our Core
Values,” http://www.wholefoodsmarket.com/mission-
values/core-values (accessed May 26, 2017).
The first two values involve meeting customer needs. Whole
5. Foods describes its commitment toward selling the highest
quality natural and organic products available as attempts to be
buying agents for customers and not selling agents for
manufacturers. Next, Whole Foods turns its attention to the
happiness of its employees. Whole Foods believes satisfying
customers and employees creates wealth for shareholders.
Communities, the environment, and suppliers are essential
stakeholders for Whole Foods and are included in its value
statements. It is clear from Whole Foods’s core values that the
company strives toward a stakeholder orientation as part of its
core business practice.
14-4 Living Its Values
The success of Whole Foods can be credited to the fact that it
modeled its operations around its key stakeholders. Mackey’s
vision of a model company was one that earned a profit while
also acting as a responsible corporate citizen by benefitting
society. This vision turned Whole Foods into one of the most
successful organic grocers in the world. The following section
delves further into how Whole Foods meets the needs of its
customers, employees, communities, and the environment.
14-4a Commitment to Customers
Because customers are the highest priority at Whole Foods, the
company adopted a number of strategies to meet the needs of
this stakeholder group. For instance, Whole Foods retail stores
maintain an inviting environment, complete with eateries and
tables both inside and outside the store for visitors to dine. Free
sampling is common at Whole Foods locations to allow
customers to try the products. Additionally, employees are
instructed to treat customers like a valued part of the family. In
2014 the company introduced a customer reward program with
the goal of becoming more competitive with retailers offering
frequent sales and item discounts. For the first time since its
inception, Whole Foods started running TV and print ads, which
has significantly increased the firm’s yearly advertising
expenditure but is also helping the grocery store chain attract
and retain more customers. The ads are focused on redefining
6. Whole Foods as a company that cares about the entire life cycle
of the products it sells. Whole Foods is hopeful that its new
advertising and in-store discounting strategy will help it move
beyond the satirical “whole paycheck” reputation that is still
prominent in many consumers’ minds because of Whole Foods’s
pricier products.
The company also builds customer relationships through the use
of social media. Whole Foods actively uses Twitter and
Facebook accounts to post information on sales, answering
customer concerns, providing articles or tips about healthy
eating, and even re-tweeting information from food experts.
Each Whole Foods location has a social media presence,
including dedicated social media pages for some store
departments. This targeted approach allows Whole Foods to
connect with customers and address concerns in real time.
Additionally, the company has worked on making its website
more user friendly and adding features that encourage online
purchases and in-store pickups. For instance, Whole Foods
partnered with a grocery delivery service called Instacart, which
offers home delivery of items purchased online. Implementing
this delivery service was likely a move to offset the
convenience that Amazon.com offers its “Prime” subscribers
who get free two-day shipping (or same-day delivery in select
cities) on many grocery items. However, the recent
announcement that Amazon would purchase Whole Foods makes
the future of the partnership between Instacart and Whole Foods
uncertain.
Whole Foods’s customer-centered focus has paid off. In the
American Customer Satisfaction Survey, Whole Foods was
voted second highest from 2010 to 2012 in the supermarket
category after Publix. Whole Foods largely differentiates itself
from its rivals by emphasizing quality over price. As consumers
become more health conscious and the trend toward organic
food continues, Whole Foods is well suited to attract this
demographic. To reassure consumers its products are of the
highest quality, Whole Foods offers a number of quality
7. standards. Its Whole Trade Guarantee maintains that the
products meet the following criteria:
· Meet its strict product quality standards
· Provide more money to producers
· Ensure better wages and working conditions for workers
· Care about the environment
· Donate 1 percent of sales to the Whole Planet Foundation
Quality Standards
Whole Foods compiled a list of standards to guarantee the
highest quality for the organic food it sells. The company works
to eliminate all genetically modified products in stores
whenever possible. It features foods free of artificial
preservatives, colors, flavors, sweeteners, and hydrogenated
fats. Its private labels are also free of high fructose corn syrup,
thought to be a big ingredient contributor to obesity in America.
One way that Whole Foods has differentiated itself from
competitors is alerting customers to the presence of genetically
modified foods (GMOs). If the company cannot find a product
that is not genetically modified, then the product is labeled to
inform customers they are buying something that is not
completely “all natural.” Until recently, when a bill was passed
that would require GMOs to be labeled, the United States
required no such labeling for products containing GMOs.
However, Whole Foods voluntarily provided GMO labeling
information to consumers even though there was no law
requiring it. The company has also committed to labeling all
GMO food products it sells by 2018, although many items are
already labeled. This commitment demonstrates the company’s
intent to reduce or eliminate genetically modified products from
all parts of the supply chain. Although GMO labeling might
dissuade customers from purchasing a particular product, it also
gives Whole Foods a competitive advantage because customers
can trust the company to be truthful.
Eco-Scale™ Rating System
Another set of quality standards Whole Foods has adopted
pertains to the cleaning supplies it sells. Whole Foods uses wha t
8. it terms the Eco-Scale™ Rating System to inform users about
the safety and the environmental impact of the cleaning
products sold in its stores. According to Whole Foods, the Eco-
Scale Rating System is the first such rating system for cleaning
supplies sold in retail stores. To develop these standards, Whole
Foods used a third-party audit system as a way to eliminate
bias. The rating system separates products into red, orange,
yellow, or green categories.
Products classified in the red category are not sold at Whole
Foods because they do not meet the company’s safety and
environmental standards. Products in the orange category appear
to be “safe” with no significant safety and environmental
concerns and no animal testing. Those in the yellow category
meet all the standards of the orange category and take further
steps to be environmentally friendly. For instance, products in
this category do not have synthetic, petroleum-based thickeners
from nonrenewable resources. Products in the yellow category
do not contain any ingredients with moderate environmental
concerns, and those in the green category are considered to be
the safest and most eco-friendly. These products do not have
any petroleum-based ingredients but are made with plant- and
mineral-based ingredients. Products in all of these categories
have the ingredients labeled on the packaging and receive third-
party verification, allowing consumers to make more informed
decisions about which cleaning products to purchase. Because
Whole Foods’s reputation depends upon the organic and green
claims of its products, this Eco-Scale Rating System and the
company’s Quality Standards ensure the truthfulness of its
product quality claims.
14-4b Commitment to Employees
If customers are the highest priority stakeholder at Whole
Foods, then employees come as a close second. Whole Foods
consistently ranks as one of the Best Companies to Work For
in Fortune magazine, and the company is committed to ensuring
equality among its employees. At a time when executive pay has
been highly criticized in proportion to employee salaries, Whole
9. Foods capped the pay of its executives at 19 times the
companies’ average full-time employee salary. CEO John
Mackey takes $1 per year in compensation.
Employees receive 20 percent discounts on company products,
and team members can participate in a companywide vote to
provide input on which benefits are most important to them.
Full-time employees who work over 800 service hours pay low
insurance premiums, and the company offers the Personal
Wellness or Health Savings Accounts to help with deductibles
and health care expenses. When employees work 6,000 service
hours, they are eligible for stock options, providing them with a
stake in the company.
While Whole Foods desires for its customers to live healthy
lives, it also desires the same for its employees. The company
began the Team Member Healthy Discount Incentive Program to
reward employees for living healthy lifestyles. Employees that
meet certain benchmarks in cholesterol level, blood pressure,
not smoking, and body mass index are eligible for an additional
10 percent discount on Whole Foods purchases.
Additionally, Whole Foods is known for its diversity. Forty-
four percent of the Whole Foods workforce consists of
minorities, with nearly the same percentage consisting of
women. Whole Foods also offers domestic-partner benefits to
same-sex couples. Whole Foods’s treatment of its employees
results in a low voluntary turnover rate of 15 percent, versus an
average turnover rate of about 100 percent for the industry.
While Whole Foods cares for its employees, it also realizes
happy employees translate into happier customers—and higher
profits. Yet Whole Foods does not seek to empower employees
simply through benefits. It also uses the talents of its employees
to improve company operations. Self-directed work teams
consisting of employees make many of the day-to-day
operational decisions at the store level. For instance, teams can
be part of the new employee hiring process, in addition to
having some control over their own scheduling. New team
members are elected onto the team by two-thirds of a vote. The
10. company provides its team members with extensive training and
resources including an online site called “Whole Foods
University” that provides educational information on many
aspects of the Whole Foods business. By empowering its
employees through teams, perks, and education, Whole Foods
has been able to turn its workforce into significant contributors
of value.
14-4b Commitment to Employees
If customers are the highest priority stakeholder at Whole
Foods, then employees come as a close second. Whole Foods
consistently ranks as one of the Best Companies to Work For
in Fortune magazine, and the company is committed to ensuring
equality among its employees. At a time when executive pay has
been highly criticized in proportion to employee salaries, Whole
Foods capped the pay of its executives at 19 times the
companies’ average full-time employee salary. CEO John
Mackey takes $1 per year in compensation.
Employees receive 20 percent discounts on company products,
and team members can participate in a companywide vote to
provide input on which benefits are most important to them.
Full-time employees who work over 800 service hours pay low
insurance premiums, and the company offers the Personal
Wellness or Health Savings Accounts to help with deductibles
and health care expenses. When employees work 6,000 service
hours, they are eligible for stock options, providing them with a
stake in the company.
While Whole Foods desires for its customers to live healthy
lives, it also desires the same for its employees. The company
began the Team Member Healthy Discount Incentive Program to
reward employees for living healthy lifestyles. Employees that
meet certain benchmarks in cholesterol level, blood pressure,
not smoking, and body mass index are eligible for an additional
10 percent discount on Whole Foods purchases.
Additionally, Whole Foods is known for its diversity. Forty-
four percent of the Whole Foods workforce consists of
minorities, with nearly the same percentage consisting of
11. women. Whole Foods also offers domestic-partner benefits to
same-sex couples. Whole Foods’s treatment of its employees
results in a low voluntary turnover rate of 15 percent, versus an
average turnover rate of about 100 percent for the industry.
While Whole Foods cares for its employees, it also realizes
happy employees translate into happier customers—and higher
profits. Yet Whole Foods does not seek to empower employees
simply through benefits. It also uses the talents of its employees
to improve company operations. Self-directed work teams
consisting of employees make many of the day-to-day
operational decisions at the store level. For instance, teams can
be part of the new employee hiring process, in addition to
having some control over their own scheduling. New team
members are elected onto the team by two-thirds of a vote. The
company provides its team members with extensive training and
resources including an online site called “Whole Foods
University” that provides educational information on many
aspects of the Whole Foods business. By empowering its
employees through teams, perks, and education, Whole Foods
has been able to turn its workforce into significant contributors
of value.
14-4c Commitment to Other Stakeholders
As Whole Foods demonstrates with its values, consumers and
employees are not the only stakeholders the firm recognizes as
important. Its fourth value includes creating wealth through
profits and growth, which is essential for any organization to
survive. The more profit Whole Foods is able to generate, the
better financial return for Whole Foods stockholders and
investors. Whole Foods believes meeting the needs of
consumers and employees translates into more wealth for its
investors. Such a stakeholder orientation recognizes the
interconnectedness of all the companies’ stakeholders. Whole
Foods demonstrates that a company can succeed with a socially
responsible focus on organic foods and quality standards.
Whole Foods strongly believes in giving back to the global
community, and this is perhaps best emphasized through its
12. Whole Planet Foundation established in October 2005. The
foundation was created with the mission to create economic
partnerships with the poor in developing-world communities.
Rather than simply providing immediate items such as food or
clothing, Whole Foods creates strategic partnerships with
microfinance institutions. Microfinance provides small loans,
typically $200 or less, to entrepreneurs in developing countries
wanting to start their own small businesses. The company’s first
grant in 2006 helped develop a microfinance program in Costa
Rica. Consumers and employees interested in donating can do
so on the foundation’s website. The foundation supports more
than 2 million micro-entrepreneurs in 69 countries across the
globe.
On a more local level, Whole Foods also established the Whole
Kids Foundation. The Whole Kids Foundation was founded with
the mission to improve the nutrition of children. The company
partners with schools and other organizations to increase
children’s access to healthier food. Company partnerships
include the Lunch Box Project, an online resource providing
information for schools that want to increase their offerings of
healthy food served in cafeterias and the Let’s Move Salad Bars
to Schools Initiative that provided funds to increase the number
of salad bars in schools across the United States. As a grocery
store committed to selling healthy and organic foods, Whole
Foods has been able to link its philanthropic endeavors to its
value of supporting stakeholder health through healthy eating
education.
In terms of supplier partnerships, Whole Foods partners with
local farmers to offer a variety of produce. Whole Foods is
committed to sourcing from local farmers that meet its quality
standards, particularly from organic farmers who engage in
sustainable agriculture. To qualify as local, food products must
have traveled less than seven hours by car or truck to the store.
Every one of Whole Foods’s regions has guidelines about how
to use the term “local” in their stores, and some stores have
chosen to adopt stricter criteria for local products by lessening
13. the travel time.
Whole Foods believes that sourcing locally grown produce
embodies its values of giving back to the community,
contributing to sustainability, and offering consumers a variety
of high-quality product choices. For instance, because there is
less of a need to package and transport products for long
distances, local farmers can make more money, which they in
turn can use to stimulate local economies. Additionally, Whole
Foods states that support for local farmers encourages them to
diversify, which increases Whole Foods’s product selection and
contributes to biodiversity in the environment. Transporting
products shorter distances also reduces the greenhouse gas
emissions released from vehicles. These win-win relationships
with farmers help Whole Foods “give back” to its suppliers and
to the environment.
Finally, although not specifically mentioned in its values
statement, Whole Foods also considers the concerns of special
interest groups. Whole Foods became the first large supermarket
to adopt humane animal treatment standards for the meat
products it sells. In developing these standards, Whole Foods
discussed ideas with animal rights special interest groups to
decide criteria for sourcing its meat products. Many companies
pay little attention to special interest groups because they are
considered secondary stakeholders. In other words, they are not
necessarily required for the company’s survival. However,
Whole Foods realized that collaborating with special interest
groups would not only secure their support but also provide an
opportunity for input on how the company could improve its
practices to become more socially responsible.
Whole Foods representatives met with members from special
interest groups, farmers, and animal experts to determine
humane animal-treatment standards species by species. The
company eventually created a supplier certification program in
partnership with the Global Animal Partnership to ensure its
suppliers were adhering to company standards. The idea behind
this program is not only to ensure compliance but also to inform
14. consumers about the meat they are purchasing. For this reason,
Whole Foods adopted a ranking system consisting of five steps.
Step 1 assures consumers that the animal lived outside of a crate
or cage. Step 2 indicates that the farm provided some type of
enrichment for the animal. Step 3 indicates that the animal had
access to the outdoors, and Step 4 means the animal was free to
roam or forage when outdoors. Step 5 means the animal lived its
entire life with all the body parts it was born with. It is also
possible to achieve a Step 5+ ranking, indicating the animal met
all the five standards in addition to spending its entire life on
one farm.
Whole Foods also introduced the similar “responsibly grown”
rating system that ranks produce based on whether pesticides
were used by the farmer. A “best” label indicates that a number
of pesticides designated by Whole Foods were not used in the
produce cultivation process. These ranking systems reiterate
Whole Foods’s concern for the environment as well as consumer
choice.
14-4d Commitment to Sustainability
Last but not least, Whole Foods is strongly committed to the
environment. We have already seen how Whole Foods strives to
reduce its environmental impact by selling organic food,
sourcing from local farmers, selling eco-friendly products, and
reducing transport times for its products. However, Whole
Foods also strives to incorporate green practices at an
operational level as well. The firm is invested significantly in
renewable energy, such as solar, wind power, and biodiesel. On
the other hand, this does not necessarily mean Whole Foods
relies solely on renewable energy sources—the company
continues to use conventional electricity as it is difficult for any
large firm to use 100 percent renewable energy. Instead, in 2006
Whole Foods decided to purchase wind energy credits to offset
its nonrenewable energy use. This money goes to fund
renewable energy projects associated with wind farms.
Some Whole Foods stores purchased solar energy installations
to power their facilities. A solar energy installation can preve nt
15. 1,650 tons of carbon dioxide from being emitted into the
atmosphere. The company also began using biodiesel fuel in its
trucks and modified some of its truck designs to cut back on
wind resistance, which in turn conserved fuel. The trucks are
equipped with a fuel-saving system that allows the engines to
turn off completely when products are being loaded or
delivered, which saves fuel that would have been expended if
the trucks were left idling. The firm began to obtain Leadership
in Energy and Environmental Design (LEED) certification for
some of its stores, meaning the stores adhere to strict
environmental standards and are constructed with more eco-
friendly building materials such as recycled wood.
Whole Foods embraces the concept of Reduce, Reuse, and
Recycle in its stores. The company does not use plastic bags
and encourages its customers to use renewable grocery bags
when shopping. As an incentive to reduce shopping bag
consumption, the stores provide a nickel refund to those who
come with renewable shopping bags. The stores also use
recycled paper when printing and have begun to use
rechargeable batteries to cut down on the waste that results
from the disposal of batteries. To reduce its energy use even
further, Whole Foods began to replace its paper and plastic food
containers and utensils with all-fiber packaging.
Finally, Whole Foods is continuing to work on selling products
that are not only good for consumers but are more beneficial
toward the environment. For instance, the company pledged to
support more sustainable sourcing of palm oil, which has
traditionally been a strong contributor to deforestation in some
countries.
Perhaps one of its biggest landmark commitments, however, is a
dedication to seafood sustainability. Whole Foods was the first
grocery chain to adopt a sustainability program for wild-caught
seafood. Because overfishing has become a substantial problem,
Whole Foods implemented a three-color labeling system to help
consumers make informed decisions. Red labels are a sign that
the seafood should be avoided because it harms the environment
16. or other marine life. Whole Foods has also developed standards
for farmed seafood to make sure the fish are being harvested
responsibly.
14-5a Reaction toward Competitors
In its more than 30 years in existence, Whole Foods grew
significantly from its humble origins. Some of this growth came
from acquiring other stores and generated criticism from those
not wanting their smaller community grocery stores to shut
down or be acquired. For instance, in the Jamaica Plain
neighborhood of Boston, Whole Foods acquired a local Latin
American store called Hi-Lo when it moved into the community.
Many local residents objected, considering Whole Foods
products to be too expensive. Most large retail chains must
exert caution when moving into a new community since their
arrival will almost inevitably have an impact on rival, and often
smaller, retailers.
While not all its acquisitions went smoothly, Whole Foods had
perhaps the most trouble when it wanted to acquire its
competitor, organic grocery chain Wild Oats. Wild Oats was the
second largest natural grocery chain in the country, and in 2007
Whole Foods announced it was acquiring its largest competitor
for $565 million. This acquisition eliminated a key competitor
and gave Whole Foods access into new markets. However, the
proposed acquisition generated immediate controversy—this
time from regulators. The Federal Trade Commission (FTC)
filed a lawsuit to block the acquisition, claiming it would
reduce competition in the industry and thus violate antitrust
laws. Cited in the complaint were emails from CEO John
Mackey stating a merger between the two companies would help
avoid “price wars.” (Price wars often happen when two close
competitors try to outdo one another and gain market share.)
This was another sign that perhaps Whole Foods wanted to gain
a strategic advantage from less competition.
The FTC also revealed that John Mackey wrote blog posts under
a pseudonym between 1999 and 2006 that highly criticized Wild
Oats. These postings included several negative comments about
17. Wild Oats’s stock prices and its future. While not illegal, many
believed these postings were unethical and even manipulative.
Whole Foods made sure to distance itself from John Mackey’s
postings by stating they were done outside of the company.
However, as the voice of the company, Mackey’s actions
brought up serious questions about how Whole Foods
approaches competing companies.
Eventually, the FTC and Whole Foods reached a deal. Whole
Foods agreed to sell 31 Wild Oats stores and sell the Wild Oats
brand. Mackey acknowledged the company would have been
better off if it had not pursued the merger, particularly as drops
in stock prices and the recession caused so much damage. In
fact, Mackey admits that Whole Foods’s rapid expansion and
inability to anticipate and respond to changing retail trends
nearly crippled the company. During the 2009 recession, Whole
Foods’s stock price dropped from $30 to $4 a share. Although
the company recovered, it is important for Whole Foods to
approach future acquisitions and relationships with rivals
carefully with respect to laws and ethical considerations.
14-5b Veering Off-Course
In 2009 in the midst of a recession and a resolution with the
FTC over the acquisition of Wild Oats, John Mackey admitted
Whole Foods had strayed from one of its core values: healthy
eating. In an interview, Mackey admitted, “We sell a bunch of
junk.” He said Whole Foods had “veered off-course” by selling
junk food and unhealthy products to consumers. Part of the
reason to stock shelves with less healthy alternatives was most
likely to court consumers, particularly with the increase in
competition. Competition from Trader Joe’s and Costco had
already led Whole Foods to modify some of its strategies, such
as matching Trader Joe’s prices on 365 Everyday Value items.
However, companies begin to encounter problems when they
stray from their corporate values, and Mackey appeared to think
Whole Foods was not being a leader in promoting healthy eating
habits.
After this admission, Whole Foods re-committed to its value of
18. healthy eating education. The company hired Healthy Eating
Specialists and began posting information on its website to
educate consumers on healthy eating. The company created
incentives for its employees to adopt healthier lifestyles, as
described earlier. By proactively engaging in the fight against
obesity, Whole Foods began to re-embrace its original core
values.
In 2015 Whole Foods’s stock dropped more than 30 percent
after the New York City Department of Consumer Affairs found
the company was overstating the price of pre-weighed packages.
Whole Foods admitted to overcharging and apologized.
Nevertheless, there was much negative publicity across the
country about the incident. John Mackey claimed that
overcharging was a mistake that involved both overcharging and
undercharging. If the priced item was not in consumers’ favor,
Whole Foods promised to give them the item for free.
14-5c Unions, Health Care, and Climate Change
It is no secret that Whole Foods prefers not to have unions.
Mackey has cited unions as creating “an adversarial relationship
in the workplace.” However, he maintains that managers cannot
stop employees from unionizing if they so desire. Some disagree
and have accused Whole Foods of union busting by threatening
reprisals if employees join a union. For example, Whole Foods
joined with Starbucks and Costco to oppose the proposed
Employee Free Choice Act that gives employees the ability to
form unions if a majority signs cards suggesting they desire to
have a union. The three retailers instead advocated for a secret
ballot process for unionization. While it is not necessarily
unethical to be against unions, union busting—or purposefully
trying to prevent unions by threats or other underhanded
tactics—has ethical and legal implications. Whole Foods should
remain vigilant to ensure store managers and other officials
respect employee rights to organize.
Health care is another debate, but not because Whole Foods has
a bad health care program for employees. Rather, the
controversy stemmed from an op-ed article Mackey wrote
19. against President Obama’s universal health care plan. Once
again because founders and/or CEOs represent a company,
society often associates their actions as speaking for the firm,
even if an action was done outside of it. In this case, Mackey, a
strong libertarian, wrote an op-ed article in The Wall Street
Journal criticizing Obama’s health care initiative and proposing
alternatives for health care reform, using Whole Foods’s health
care plan as an example. For instance, Whole Foods provides up
to $1,800 of funds per year for employees to use for medical
care. Money not spent rolls over into the next year. Afterward,
Whole Foods will not cover the insurance costs until the
employee meets a $2,500 deductible. According to Mackey, this
encourages employees to spend the first $1,800 carefully and
provides them with the opportunity to determine what their
health care needs are.
Mackey’s letter led to anger from supporters of the nationalized
health care initiative. Some unions and consumers began to
boycott Whole Foods’s stores because of Mackey’s stance,
claiming he sees health care as a privilege and not a right.
Others, however, refused to boycott even though they disagreed
with Mackey’s views. They believed Mackey—and Whole
Foods—had the right to express their opinions. Regardless,
Whole Foods’s sales did seem to be somewhat affected by
Mackey’s controversial remarks.
Mackey stirred more sentiment a few years later for allegedly
downplaying the dangers of global warming. He mentioned that
climate change is a normal process that should not be used as an
excuse to curb economic growth. Mackey went on to say that
society would learn to cope and adapt to rising temperatur es and
climate change is not as big of a deal as it has been made out to
be. This is an interesting ethical issue, not because it had a
drastic impact on Whole Foods’s bottom line but because it
brings up the issue of businesses’ and business representatives’
rights to express their viewpoints—particularly in the political
limelight. These ethical issues are not always easy to settle and
continue to be relevant for businesses that have major stakes in
20. regulatory decisions.
14-6 Current Challenges
Although Whole Foods continues to have ethical risks it must
address, today the firm faces more competitive challenges than
ethical ones. Despite Whole Foods’s massive success, an
increase in competition in the organic food industry from
Kroger, Walmart, Costco, and e-commerce has caused sales to
drop. Although Whole Foods has focused on expanding its
stores, the expansion has not had the intended effect. According
to a survey from Kantar Retail, in 2009 Whole Foods had a 7
percent penetration rate at 273 stores. Today with its 430 U.S.
locations, Whole Foods has increased this penetration rate by
only one percent. Some believe Whole Foods is developing
stores too close in proximity to each other, leading different
stores to compete for the same customers rather than attracting
new ones. Whole Foods announced that it would temporarily
halt its goal of increasing its stores to 1,200 across the country
to focus more on reinvigorating the struggling retail chain.
Although Whole Foods remains popular among Millennials, it
has recently lost more customers from the Baby Boomer and
Gen X generations. It is estimated that within an 18-month
period, Whole Foods lost 9–14 million customers to its
competitors. Ironically, one reason why Whole Foods has
struggled is due to the giant leap of popularity in organic food.
Organic food sales have increased by 209 percent in a 10-year
period. While this should act as a boost to Whole Foods, instead
it has introduced more competition. Traditional mass-market
retailers like Walmart, Kroger, and Costco have invested
heavily in selling organic food at lower prices. This is leading
customers to turn toward the lower-priced products at places
like Kroger and Walmart rather than the higher-priced products
sold at Whole Foods. In fact, mass-market retailers made 53.3
percent of organic food sales in 2015.
The decrease in sales led to fears of a potential proxy fight
among shareholders. Some shareholders, upset about the
consistent drop in sales, began recommending the sale of the
21. company. Although Whole Foods responded by adding five
more people to the board, shareholders were still unhappy.
Some criticisms were levied against CEO John Mackey, who
was accused of “getting the hard things right over the years” but
not getting “the easy stuff right.” Mackey is also promoting his
new book, The Whole Foods Diet: The Lifesaving Plan for
Health and Longevity, which led critics to worry that Mackey
could get distracted from addressing some of the core issues the
company is facing. In 2017 Whole Foods surprised everyone
when Mackey announced Amazon’s intentions to acquire Whole
Foods for $13.7 billion. As part of the acquisition, Mackey will
remain as CEO of the company.
Whole Foods announced it will adopt a $600 million cost-saving
initiative that will allow it to lower prices on some of its
standard fare. Shareholders have been advocating for Whole
Foods to lower its prices to compete more effectively against its
mass-market competitors. Whole Foods has adopted more
programs to encourage consumers to buy, including mailing out
discount circulars and developing its customer loyalty program.
However, lower prices are more likely to be a temporary Band-
Aid to Whole Foods’s struggles. Lowering prices too much is
likely to compromise the perception of quality that
differentiates Whole Foods and makes it beloved by its loyal
customers. In contrast, Amazon is known for its extremely low
prices compared to competitors. Although Mackey will remain
as CEO of Whole Foods, stakeholders wonder whether
Amazon’s low-price strategy will influence the way Whole
Foods prices its products. Whole Foods must carefully balance
pricing its products more competitively while maintaining the
high-quality image of its products.
Part of this cost-cutting effort involves centralizing more of its
operations. Whole Foods has been operating under a regional
buying system, where different stores have different products
depending upon the location. However, this strategy is
expensive, and centralizing more of its operations will cut down
on costs. Again, Whole Foods faces a delicate balancing act as
22. centralizing operations too much could compromise the unique
community feel of individual stores. The trick for Whole Foods
will be developing a more centralized approach without
sacrificing the unique qualities that solidified its reputation.
Although Whole Foods is facing one of its greatest struggles,
the firm still has a powerful advantage: its unique foodie aspect
and the strong connections it develops with its stakeholders.
One investor commented on Whole Foods’s ability to create
strong emotional connections with customers. These types of
connections can be hard to cultivate, especially among mass-
market retailers. As a result, many customers are fiercely loyal
to Whole Foods. Whole Foods’s expansion into the restaurant
industry might also help to draw in more consumers,
particularly as it is already known for its in-store dining areas.
Although Whole Foods has encountered obstacles in expanding
its physical stores, the proposed acquisition by Amazon
demonstrates the firm’s immense value to the grocery industry.
Whole Foods’s customer orientation will be the key in any
effort to revitalize the company.
IT STraTegy:
ISSueS and PracTIceS
This page intentionally left blank
IT STraTegy:
ISSueS and PracTIceS
23. T h i r d E d i t i o n
James D. McKeen
Queen’s University
Heather A. Smith
Queen’s University
Boston Columbus Indianapolis New York San Francisco Upper
Saddle River
Amsterdam Cape Town Dubai London Madrid Milan Munich
Paris Montréal Toronto
Delhi Mexico City São Paulo Sydney Hong Kong Seoul
Singapore Taipei Tokyo
Editor in Chief: Stephanie Wall
Acquisitions Editor: Nicole Sam
Program Manager Team Lead: Ashley Santora
Program Manager: Denise Vaughn
Editorial Assistant: Kaylee Rotella
Executive Marketing Manager: Anne K. Fahlgren
Project Manager Team Lead: Judy Leale
Project Manager: Thomas Benfatti
Procurement Specialist: Diane Peirano
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Full Service Project Management: Abinaya Rajendran at Integra
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Text Font: 10/12 Palatino LT Std
25. CoNTENTS
Preface xiii
About the Authors xxi
Acknowledgments xxii
Section I Delivering Value with IT 1
Chapter 1 DeVelopIng anD DelIVerIng on The IT Value
propoSITIon 2
Peeling the Onion: Understanding IT Value 3
What Is IT Value? 3
Where Is IT Value? 4
Who Delivers IT Value? 5
When Is IT Value Realized? 5
The Three Components of the IT Value Proposition 6
Identification of Potential Value 7
Effective Conversion 8
Realizing Value 9
Five Principles for Delivering Value 10
Principle 1. Have a Clearly Defined Portfolio Value
Management
Process 11
Principle 2. Aim for Chunks of Value 11
26. Principle 3. Adopt a Holistic Orientation to Technology Value
11
Principle 4. Aim for Joint Ownership of Technology Initiatives
12
Principle 5. Experiment More Often 12
Conclusion 12 • References 13
Chapter 2 DeVelopIng IT STraTegy for BuSIneSS Value 15
Business and IT Strategies: Past, Present, and Future 16
Four Critical Success Factors 18
The Many Dimensions of IT Strategy 20
Toward an IT Strategy-Development Process 22
Challenges for CIOs 23
Conclusion 25 • References 25
Chapter 3 lInkIng IT To BuSIneSS MeTrICS 27
Business Measurement: An Overview 28
Key Business Metrics for IT 30
v
vi Contents
Designing Business Metrics for IT 31
Advice to Managers 35
Conclusion 36 • References 36
27. Chapter 4 BuIlDIng a STrong relaTIonShIp
wITh The BuSIneSS 38
The Nature of the Business–IT Relationship 39
The Foundation of a Strong Business–IT
Relationship 41
Building Block #1: Competence 42
Building Block #2: Credibility 43
Building Block #3: Interpersonal Interaction 44
Building Block #4: Trust 46
Conclusion 48 • References 48
Appendix A The Five IT Value Profiles 50
Appendix B Guidelines for Building a Strong Business–IT
Relationship 51
Chapter 5 CoMMunICaTIng wITh BuSIneSS ManagerS 52
Communication in the Business–IT Relationship 53
What Is “Good” Communication? 54
Obstacles to Effective Communication 56
“T-Level” Communication Skills for IT Staff 58
Improving Business–IT Communication 60
Conclusion 61 • References 61
Appendix A IT Communication Competencies 63
28. Chapter 6 BuIlDIng BeTTer IT leaDerS froM
The BoTToM up 64
The Changing Role of the IT Leader 65
What Makes a Good IT Leader? 67
How to Build Better IT Leaders 70
Investing in Leadership Development: Articulating the Value
Proposition 73
Conclusion 74 • References 75
MInI CaSeS
Delivering Business Value with IT at Hefty Hardware 76
Investing in TUFS 80
IT Planning at ModMeters 82
Contents vii
Section II IT governance 87
Chapter 7 CreaTIng IT ShareD SerVICeS 88
IT Shared Services: An Overview 89
IT Shared Services: Pros and Cons 92
IT Shared Services: Key Organizational Success Factors 93
Identifying Candidate Services 94
An Integrated Model of IT Shared Services 95
29. Recommmendations for Creating Effective IT
Shared Services 96
Conclusion 99 • References 99
Chapter 8 a ManageMenT fraMework for
IT SourCIng 100
A Maturity Model for IT Functions 101
IT Sourcing Options: Theory Versus Practice 105
The “Real” Decision Criteria 109
Decision Criterion #1: Flexibility 109
Decision Criterion #2: Control 109
Decision Criterion #3: Knowledge Enhancement 110
Decision Criterion #4: Business Exigency 110
A Decision Framework for Sourcing IT Functions 111
Identify Your Core IT Functions 111
Create a “Function Sourcing” Profile 111
Evolve Full-Time IT Personnel 113
Encourage Exploration of the Whole Range
of Sourcing Options 114
Combine Sourcing Options Strategically 114
A Management Framework for Successful
30. Sourcing 115
Develop a Sourcing Strategy 115
Develop a Risk Mitigation Strategy 115
Develop a Governance Strategy 116
Understand the Cost Structures 116
Conclusion 117 • References 117
Chapter 9 The IT BuDgeTIng proCeSS 118
Key Concepts in IT Budgeting 119
The Importance of Budgets 121
The IT Planning and Budget Process 123
viii Contents
Corporate Processes 123
IT Processes 125
Assess Actual IT Spending 126
IT Budgeting Practices That Deliver Value 127
Conclusion 128 • References 129
Chapter 10 ManagIng IT- BaSeD rISk 130
A Holistic View of IT-Based Risk 131
Holistic Risk Management: A Portrait 134
31. Developing a Risk Management Framework 135
Improving Risk Management Capabilities 138
Conclusion 139 • References 140
Appendix A A Selection of Risk Classification
Schemes 141
Chapter 11 InforMaTIon ManageMenT: The nexuS
of BuSIneSS anD IT 142
Information Management: How Does IT Fit? 143
A Framework For IM 145
Stage One: Develop an IM Policy 145
Stage Two: Articulate the Operational
Components 145
Stage Three: Establish Information Stewardship 146
Stage Four: Build Information Standards 147
Issues In IM 148
Culture and Behavior 148
Information Risk Management 149
Information Value 150
Privacy 150
Knowledge Management 151
32. The Knowing–Doing Gap 151
Getting Started in IM 151
Conclusion 153 • References 154
Appendix A Elements of IM Operations 155
MInI CaSeS
Building Shared Services at RR Communications 156
Enterprise Architecture at Nationstate Insurance 160
IT Investment at North American Financial 165
Contents ix
Section III IT-enabled Innovation 169
Chapter 12 InnoVaTIon wITh IT 170
The Need for Innovation: An Historical
Perspective 171
The Need for Innovation Now 171
Understanding Innovation 172
The Value of Innovation 174
Innovation Essentials: Motivation, Support,
and Direction 175
Challenges for IT leaders 177
33. Facilitating Innovation 179
Conclusion 180 • References 181
Chapter 13 BIg DaTa anD SoCIal CoMpuTIng 182
The Social Media/Big Data Opportunity 183
Delivering Business Value with Big Data 185
Innovating with Big Data 189
Pulling in Two Different Directions: The Challenge
for IT Managers 190
First Steps for IT Leaders 192
Conclusion 193 • References 194
Chapter 14 IMproVIng The CuSToMer experIenCe:
an IT perSpeCTIVe 195
Customer Experience and Business value 196
Many Dimensions of Customer Experience 197
The Role of Technology in Customer Experience 199
Customer Experience Essentials for IT 200
First Steps to Improving Customer Experience 203
Conclusion 204 • References 204
Chapter 15 BuIlDIng BuSIneSS InTellIgenCe 206
Understanding Business Intelligence 207
The Need for Business Intelligence 208
The Challenge of Business Intelligence 209
34. The Role of IT in Business Intelligence 211
Improving Business Intelligence 213
Conclusion 216 • References 216
x Contents
Chapter 16 enaBlIng CollaBoraTIon wITh IT 218
Why Collaborate? 219
Characteristics of Collaboration 222
Components of Successful Collaboration 225
The Role of IT in Collaboration 227
First Steps for Facilitating Effective Collaboration 229
Conclusion 231 • References 232
MInI CaSeS
Innovation at International Foods 234
Consumerization of Technology at IFG 239
CRM at Minitrex 243
Customer Service at Datatronics 246
Section IV IT portfolio Development and Management 251
Chapter 17 applICaTIon porTfolIo ManageMenT 252
The Applications Quagmire 253
The Benefits of a Portfolio Perspective 254
35. Making APM Happen 256
Capability 1: Strategy and Governance 258
Capability 2: Inventory Management 262
Capability 3: Reporting and Rationalization 263
Key Lessons Learned 264
Conclusion 265 • References 265
Appendix A Application Information 266
Chapter 18 ManagIng IT DeManD 270
Understanding IT Demand 271
The Economics of Demand Management 273
Three Tools for Demand management 273
Key Organizational Enablers for Effective Demand
Management 274
Strategic Initiative Management 275
Application Portfolio Management 276
Enterprise Architecture 276
Business–IT Partnership 277
Governance and Transparency 279
Conclusion 281 • References 281
36. Contents xi
Chapter 19 CreaTIng anD eVolVIng a TeChnology
roaDMap 283
What is a Technology Roadmap? 284
The Benefits of a Technology Roadmap 285
External Benefits (Effectiveness) 285
Internal Benefits (Efficiency) 286
Elements of the Technology Roadmap 286
Activity #1: Guiding Principles 287
Activity #2: Assess Current Technology 288
Activity #3: Analyze Gaps 289
Activity #4: Evaluate Technology
Landscape 290
Activity #5: Describe Future Technology 291
Activity #6: Outline Migration Strategy 292
Activity #7: Establish Governance 292
Practical Steps for Developing a Technology
Roadmap 294
Conclusion 295 • References 295
Appendix A Principles to Guide a Migration
37. Strategy 296
Chapter 20 enhanCIng DeVelopMenT
proDuCTIVITy 297
The Problem with System Development 298
Trends in System Development 299
Obstacles to Improving System Development
Productivity 302
Improving System Development Productivity: What we
know that Works 304
Next Steps to Improving System Development
Productivity 306
Conclusion 308 • References 308
Chapter 21 InforMaTIon DelIVery: IT’S eVolVIng role 310
Information and IT: Why Now? 311
Delivering Value Through Information 312
Effective Information Delivery 316
New Information Skills 316
New Information Roles 317
New Information Practices 317
xii Contents
New Information Strategies 318
38. The Future of Information Delivery 319
Conclusion 321 • References 322
MInI CaSeS
Project Management at MM 324
Working Smarter at Continental Furniture International 328
Managing Technology at Genex Fuels 333
Index 336
PREFACE
Today, with information technology (IT) driving constant
business transformation,
overwhelming organizations with information, enabling 24/7
global operations, and
undermining traditional business models, the challenge for
business leaders is not
simply to manage IT, it is to use IT to deliver business value.
Whereas until fairly recently,
decisions about IT could be safely delegated to technology
specialists after a business
strategy had been developed, IT is now so closely integrated
with business that, as one
CIO explained to us, “We can no longer deliver business
solutions in our company
without using technology so IT and business strategy must
constantly interact with
each other.”
What’s New in This Third Edition?
39. • Six new chapters focusing on current critical issues in IT
management, including
IT shared services; big data and social computing; business
intelligence; manag-
ing IT demand; improving the customer experience; and
enhancing development
productivity.
• Two significantly revised chapters: on delivering IT functions
through different
resourcing options; and innovating with IT.
•
TwonewminicasesbasedonrealcompaniesandrealITmanagementsi
tuations:
Working Smarter at Continental Furniture and Enterprise
Architecture at Nationstate
Insurance.
•
Arevisedstructurebasedonreaderfeedbackwithsixchaptersandtwo
minicases
from the second edition being moved to the Web site.
All too often, in our efforts to prepare future executives to deal
effectively with
the issues of IT strategy and management, we lead them into a
foreign country where
they encounter a different language, different culture, and
different customs. Acronyms
(e.g., SOA, FTP/IP, SDLC, ITIL, ERP), buzzwords (e.g.,
asymmetric encryption, proxy
servers, agile, enterprise service bus), and the widely adopted
practice of abstraction
(e.g., Is a software monitor a person, place, or thing?) present
formidable “barriers to
40. entry” to the technologically uninitiated, but more important,
they obscure the impor-
tance of teaching students how to make business decisions about
a key organizational
resource. By taking a critical issues perspective, IT Strategy:
Issues and Practices treats IT
as a tool to be leveraged to save and/or make money or
transform an organizati on—not
as a study by itself.
As in the first two editions of this book, this third edition
combines the experi-
ences and insights of many senior IT managers from leading-
edge organizations with
thorough academic research to bring important issues in IT
management to life and
demonstrate how IT strategy is put into action in contemporary
businesses. This new
edition has been designed around an enhanced set of critical
real-world issues in IT
management today, such as innovating with IT, working with
big data and social media,
xiii
xiv Preface
enhancing customer experience, and designing for business
intelligence and introduces
students to the challenges of making IT decisions that will have
significant impacts on
how businesses function and deliver value to stakeholders.
IT Strategy: Issues and Practices focuses on how IT is changing
41. and will continue to
change organizations as we now know them. However, rather
than learning concepts
“free of context,” students are introduced to the complex
decisions facing real organi-
zations by means of a number of mini cases. These provide an
opportunity to apply
the models/theories/frameworks presented and help students
integrate and assimilate
this material. By the end of the book, students will have the
confidence and ability to
tackle the tough issues regarding IT management and strategy
and a clear understand-
ing of their importance in delivering business value.
Key Features of This Book
• AfocusonITmanagement issues as opposed to technology
issues
• CriticalITissuesexploredwithintheirorganizationalcontexts
•
ReadilyapplicablemodelsandframeworksforimplementingITstrat
egies
•
Minicasestoanimateissuesandfocusclassroomdiscussionsonreal -
worlddeci-
sions, enabling problem-based learning
• Provenstrategiesandbestpracticesfromleading-
edgeorganizations
•
UsefulandpracticaladviceandguidelinesfordeliveringvaluewithIT
• Extensiveteachingnotesforallminicases
A Different ApproAch to teAching it StrAtegy
42. The real world of IT is one of issues—critical issues—such as
the following:
• HowdoweknowifwearegettingvaluefromourITinvestment?
• HowcanweinnovatewithIT?
• WhatspecificITfunctionsshouldweseekfromexternalproviders?
•
HowdowebuildanITleadershipteamthatisatrustedpartnerwiththeb
usiness?
• HowdoweenhanceITcapabilities?
• WhatisIT’sroleincreatinganintelligentbusiness?
•
Howcanwebesttakeadvantageofnewtechnologies,suchasbigdataan
dsocial
media, in our business?
• HowcanwemanageITrisk?
However, the majority of management information systems
(MIS) textbooks are orga-
nized by system category (e.g., supply chain, customer
relationship management, enterprise
resource planning), by system component (e.g., hardware,
software, networks), by system
function (e.g., marketing, financial, human resources), by
system type (e.g., transactional,
decisional, strategic), or by a combination of these.
Unfortunately, such an organization
does not promote an understanding of IT management in
practice.
IT Strategy: Issues and Practices tackles the real-world
challenges of IT manage-
ment. First, it explores a set of the most important issues facing
IT managers today, and
second, it provides a series of mini cases that present these
43. critical IT issues within the
context of real organizations. By focusing the text as well as the
mini cases on today’s
critical issues, the book naturally reinforces problem-based
learning.
Preface xv
IT Strategy: Issues and Practices includes thirteen mini cases —
each based on a real
company presented anonymously.1 Mini cases are not simply
abbreviated versions of
standard, full-length business cases. They differ in two
significant ways:
1. A horizontal perspective. Unlike standard cases that develop
a single issue within
an organizational setting (i.e., a “vertical” slice of
organizational life), mini cases
take a “horizontal” slice through a number of coexistent issues.
Rather than looking
for a solution to a specific problem, as in a standard case,
students analyzing a mini
case must first identify and prioritize the issues embedded
within the case. This mim-
ics real life in organizations where the challenge lies in
“knowing where to start” as
opposed to “solving a predefined problem.”
2. Highly relevant information. Mini cases are densely written.
Unlike standard
cases, which intermix irrelevant information, in a mini case,
each sentence exists for
a reason and reflects relevant information. As a result, students
44. must analyze each
case very carefully so as not to miss critical aspects of the
situation.
Teaching with mini cases is, thus, very different than teaching
with standard cases.
With mini cases, students must determine what is really going
on within the organiza-
tion. What first appears as a straightforward “technology”
problem may in fact be a
political problem or one of five other “technology” problems.
Detective work is, there-
fore, required. The problem identification and prioritization
skills needed are essential
skills for future managers to learn for the simple reason that it
is not possible for organi-
zations to tackle all of their problems concurrently. Mini cases
help teach these skills to
students and can balance the problem-solving skills learned in
other classes. Best of all,
detective work is fun and promotes lively classroom discussion.
To assist instructors, extensive teaching notes are available for
all mini cases. Developed
by the authors and based on “tried and true” in-class experience,
these notes include case
summaries, identify the key issues within each case, present
ancillary information about the
company/industry represented in the case, and offer guidelines
for organizing the class-
room discussion. Because of the structure of these mini cases
and their embedded issues, it
is common for teaching notes to exceed the length of the actual
mini case!
This book is most appropriate for MIS courses where the goal is
45. to understand how
IT delivers organizational value. These courses are frequently
labeled “IT Strategy” or
“IT Management” and are offered within undergraduate as well
as MBA programs. For
undergraduate juniors and seniors in business and commerce
programs, this is usually
the “capstone” MIS course. For MBA students, this course may
be the compulsory core
course in MIS, or it may be an elective course.
Each chapter and mini case in this book has been thoroughly
tested in a variety
of undergraduate, graduate, and executive programs at Queen’s
School of Business.2
1 We are unable to identify these leading-edge companies by
agreements established as part of our overall
research program (described later).
2 Queen’s School of Business is one of the world’s premier
business schools, with a faculty team renowned
for its business experience and academic credentials. The
School has earned international recognition for
its innovative approaches to team-based and experiential
learning. In addition to its highly acclaimed MBA
programs, Queen’s School of Business is also home to Canada’s
most prestigious undergraduate business
program and several outstanding graduate programs. As well,
the School is one of the world’s largest and
most respected providers of executive education.
xvi Preface
These materials have proven highly successful within all
46. programs because we adapt
how the material is presented according to the level of the
students. Whereas under-
graduate students “learn” about critical business issues from the
book and mini cases
for the first time, graduate students are able to “relate” to these
same critical issues
based on their previous business experience. As a resul t,
graduate students are able to
introduce personal experiences into the discussion of these
critical IT issues.
orgAnizAtion of thiS Book
One of the advantages of an issues-focused structure is that
chapters can be approached
in any order because they do not build on one another. Chapter
order is immaterial; that
is, one does not need to read the first three chapters to
understand the fourth. This pro-
vides an instructor with maximum flexibility to organize a
course as he or she sees fit.
Thus, within different courses/programs, the order of topics can
be changed to focus on
different IT concepts.
Furthermore, because each mini case includes multiple issues,
they, too, can be
used to serve different purposes. For example, the mini case
“Building Shared Services
at RR Communications” can be used to focus on issues of
governance, organizational
structure, and/or change management just as easily as shared
services. The result is a
rich set of instructional materials that lends itself well to a
variety of pedagogical appli-
47. cations, particularly problem-based learning, and that clearly
illustrates the reality of IT
strategy in action.
The book is organized into four sections, each emphasizing a
key component of
developing and delivering effective IT strategy:
• Section I: Delivering Value with IT is designed to examine the
complex ways that
IT and business value are related. Over the past twenty years,
researchers and prac-
titioners have come to understand that “business value” can
mean many different
things when applied to IT. Chapter 1 (Developing and
Delivering on the IT Value
Proposition) explores these concepts in depth. Unlike the
simplistic value propo-
sitions often used when implementing IT in organizations, this
chapter presents
“value” as a multilayered business construct that must be
effectively managed at
several levels if technology is to achieve the benefits expected.
Chapter 2 (Developing
IT Strategy for Business Value) examines the dynamic
interrelationship between
business and IT strategy and looks at the processes and critical
success factors
used by organizations to ensure that both are well aligned.
Chapter 3 (Linking IT
to Business Metrics) discusses new ways of measuring IT’s
effectiveness that pro-
mote closer business–IT alignment and help drive greater
business value. Chapter
4 (Building a Strong Relationship with the Business) examines
the nature of the
48. business–IT relationship and the characteristics of an effective
relationship that
delivers real value to the enterprise. Chapter 5 (Communicating
with Business
Managers) explores the business and interpersonal competencies
that IT staff will
need in order to do their jobs effectively over the next five to
seven years and what
companies should be doing to develop them. Finally, Chapter 6
(Building Better IT
Leaders from the Bottom Up) tackles the increasing need for
improved leadership
skills in all IT staff and examines the expectations of the
business for strategic and
innovative guidance from IT.
Preface xvii
In the mini cases associated with this section, the concepts of
delivering
value with IT are explored in a number of different ways. We
see business and
IT executives at Hefty Hardware grappling with conflicting
priorities and per-
spectives and how best to work together to achieve the
company’s strategy. In
“Investing in TUFS,” CIO Martin Drysdale watches as all of the
work his IT depart-
ment has put into a major new system fails to deliver value. And
the “IT Planning
at ModMeters” mini case follows CIO Brian Smith’s efforts to
create a strategic
IT plan that will align with business strategy, keep IT running,
and not increase
49. IT’s budget.
• Section II: IT Governance explores key concepts in how the IT
organization is
structured and managed to effectively deliver IT products and
services to the orga-
nization. Chapter 7 (IT Shared Services) discusses how IT
shared services should be
selected, organized, managed, and governed to achieve
improved organizational
performance. Chapter 8 (A Management Framework for IT
Sourcing) examines
how organizations are choosing to source and deliver different
types of IT functions
and presents a framework to guide sourcing decisions. Chapter 9
(The IT Budgeting
Process) describes the “evil twin” of IT strategy, discussing
how budgeting mecha-
nisms can significantly undermine effective business strategies
and suggesting
practices for addressing this problem while maintaining
traditional fiscal account-
ability. Chapter 10 (Managing IT-based Risk) describes how
many IT organizations
have been given the responsibility of not only managing risk in
their own activities
(i.e., project development, operations, and delivering business
strategy) but also
of managing IT-based risk in all company activities (e.g.,
mobile computing, file
sharing, and online access to information and software) and the
need for a holistic
framework to understand and deal with risk effectively. Chapter
11 (Information
Management: The Nexus of Business and IT) describes how new
organizational
50. needs for more useful and integrated information are driving the
development of
business-oriented functions within IT that focus specifically on
information and
knowledge, as opposed to applications and data.
The mini cases in this section examine the difficulties of
managing com-
plex IT issues when they intersect substantially with important
business issues.
In “Building Shared Services at RR Communications,” we see
an IT organiza-
tion in transition from a traditional divisional structure and
governance model
to a more centralized enterprise model, and the long-term
challenges experi-
enced by CIO Vince Patton in changing both business and IT
practices, includ-
ing information management and delivery, to support this new
approach. In
“Enterprise Architecture at Nationstate Insurance,” CIO Jane
Denton endeavors
to make IT more flexible and agile, while incorporating new and
emerging tech-
nologies into its strategy. In “IT Investment at North American
Financial,” we
show the opportunities and challenges involved in prioritizing
and resourcing
enterprisewide IT projects and monitoring that anticipated
benefits are being
achieved.
• Section III: IT-Enabled Innovation discusses some of the ways
technology is
being used to transform organizations. Chapter 12 (Innovation
with IT) examines
51. the nature and importance of innovation with IT and describes a
typical inno-
vation life cycle. Chapter 13 (Big Data and Social Computing)
discusses how IT
leaders are incorporating big data and social media concepts and
technologies
xviii Preface
to successfully deliver business value in new ways. Chapter 14
(Improving the
Customer Experience: An IT Perspective) explores the IT
function’s role in creating
and improving an organization’s customer experiences and the
role of technology
in helping companies to understand and learn from their
customers’ experiences.
Chapter 15 (Building Business Intelligence) looks at the nature
of business intelli-
gence and its relationship to data, information, and knowledge
and how IT can be
used to build a more intelligent organization. Chapter 16
(Enabling Collaboration
with IT) identifies the principal forms of collaboration used in
organizations, the
primary business drivers involved in them, how their business
value is measured,
and the roles of IT and the business in enabling collaboration.
The mini cases in this section focus on the key challenges
companies face in
innovating with IT. “Innovation at International Foods”
contrasts the need for pro-
cess and control in corporate IT with the strong push to
52. innovate with technology
and the difficulties that ensue from the clash of style and
culture. “Consumerization
of Technology at IFG” looks at issues such as “bring your own
device” (BYOD) to
the workplace. In “CRM at Minitrex,” we see some of the
internal technological and
political conflicts that result from a strategic decision to
become more customercen-
tric. Finally, “Customer Service at Datatronics” explores the
importance of present-
ing unified, customer-facing IT to customers.
• Section IV: IT Portfolio Development and Management looks
at how the IT
function must transform itself to be able to deliver business
value effectively in
the future. Chapter 17 (Application Portfolio Management)
describes the ongoing
management process of categorizing, assessing, and
rationalizing the IT application
portfolio. Chapter 18 (Managing IT Demand) looks at the often
neglected issue of
demand management (as opposed to supply management),
explores the root causes
of the demand for IT services, and identifies a number of tools
and enablers to
facilitate more effective demand management. Chapter 19
(Creating and Evolving
a Technology Roadmap) examines the challenges IT managers
face in implement-
ing new infrastructure, technology standards, and types of
technology in their real-
world business and technical environments, which is composed
of a huge variety of
hardware, software, applications, and other technologies, some
53. of which date back
more than thirty years. Chapter 20 (Enhancing Development
Productivity) explores
how system development practices are changing and how
managers can create
an environment to promote improved development productivity.
And Chapter 21
(Information Delivery: IT’s Evolving Role) examines the fresh
challenges IT faces in
managing the exponential growth of data and digital assets;
privacy and account-
ability concerns; and new demands for access to information on
an anywhere, any-
time basis.
The mini cases associated with this section describe many of
these themes
embedded within real organizational contexts. “Project
Management at MM” mini
case shows how a top-priority, strategic project can take a
wrong turn when proj-
ect management skills are ineffective. “Working Smarter at
Continental Furniture”
mini case follows an initiative to improve the company’s
analytics so it can reduce
its environmental impact. And in the mini case “Managing
Technology at Genex
Fuels,” we see CIO Nick Devlin trying to implement
enterprisewide technology for
competitive advantage in an organization that has been limping
along with obscure
and outdated systems.
Preface xix
54. SupplementAry mAteriAlS
online instructor resource center
The following supplements are available online to adopting
instructors:
• PowerPointLectureNotes
• ImageLibrary(textart)
• ExtensiveTeachingNotesforallMinicases
•
AdditionalchaptersincludingDevelopingITProfessionalism;ITSo
urcing;Master
Data Management; Developing IT Capabilities; The Identity
Management Challenge;
Social Computing; Managing Perceptions of IT; IT in the New
World of Corporate
Governance Reforms; Enhancing Customer Experiences with
Technology; Creating
Digital Dashboards; and Managing Electronic Communications.
•
Additionalminicases,includingITLeadershipatMaxTrade;Creatin
gaProcess-Driven
Organization at Ag-Credit; Information Management at
Homestyle Hotels; Knowledge
Management at Acme Consulting; Desktop Provisioning at
CanCredit; and Leveraging
IT Vendors at SleepSmart.
For detailed descriptions of all of the supplements just listed,
please visit http://
www.pearsonhighered.com/mckeen.
courseSmart etextbooks online
55. CourseSmart is an exciting new choice for students looking to
save money. As an alter-
native to purchasing the print textbook, students can purchase
an electronic version of
the same content and save up to 50 percent off the suggested list
price of the print text.
With a CourseSmart etextbook, students can search the text,
make notes online, print
out reading assignments that incorporate lecture notes, and
bookmark important pas-
sages for later review. www.coursesmart.com.
the geneSiS of thiS Book
Since 1990 we have been meeting quarterly with a group of
senior IT managers from
a number of leading-edge organizations (e.g., Eli Lilly, BMO,
Honda, HP, CIBC, IBM,
Sears, Bell Canada, MacDonalds, and Sun Life) to identify and
discuss critical IT manage-
ment issues. This focus group represents a wide variety of
industry sectors (e.g., retail,
manufacturing, pharmaceutical, banking, telecommunications,
insurance, media, food
processing, government, and automotive). Originally, it was
established to meet the com-
panies’ needs for well-balanced, thoughtful, yet practical
information on emerging IT
management topics, about which little or no research was
available. However, we soon
recognized the value of this premise for our own research in the
rapidly evolving field
of IT management. As a result, it quickly became a full-scale
research program in which
we were able to use the focus group as an “early warning
system” to document new IT
56. management issues, develop case studies around them, and
explore more collaborative
approaches to identifying trends, challenges, and effective
practices in each topic area.3
3 This now includes best practice case studies, field research in
organizations, multidisciplinary qualitative
and quantitative research projects, and participation in
numerous CIO research consortia.
http://www.pearsonhighered.com/mckeen
http://www.pearsonhighered.com/mckeen
http://www.coursesmart.com
xx Preface
As we shared our materials with our business students, we
realized that this issues-
based approach resonated strongly with them, and we began to
incorporate more of our
research into the classroom. This book is the result of our many
years’ work with senior
IT managers, in organizations, and with students in the
classroom.
Each issue in this book has been selected collaboratively by the
focus group after
debate and discussion. As facilitators, our job has been to keep
the group’s focus on IT
management issues, not technology per se. In preparation for
each meeting, focus group
members researched the topic within their own organization,
often involving a number
of members of their senior IT management team as well as
subject matter experts in
57. the process. To guide them, we provided a series of questions
about the issue, although
members are always free to explore it as they see fit. This
approach provided both struc-
ture for the ensuing discussion and flexibility for those
members whose organizations
are approaching the issue in a different fashion.
The focus group then met in a full-day session, where the
members discussed all
aspects of the issue. Many also shared corporate documents with
the group. We facilitated
the discussion, in particular pushing the group to achieve a
common understanding of
the dimensions of the issue and seeking examples, best
practices, and guidelines for deal-
ing with the challenges involved. Following each session, we
wrote a report based on the
discussion, incorporating relevant academic and practitioner
materials where these were
available. (Because some topics are “bleeding edge,” there is
often little traditional IT
research available on them.)
Each report has three parts:
1. A description of the issue and the challenges it presents for
both business and IT
managers
2. Models and concepts derived from the literature to position
the issue within a con-
textual framework
3. Near-term strategies (i.e., those that can be implemented
immediately) that have
58. proven successful within organizations for dealing with the
specific issue
Each chapter in this book focuses on one of these critical IT
issues. We have learned
over the years that the issues themselves vary little across
industries and organizations,
even in enterprises with unique IT strategies. However, each
organization tackles the
same issue somewhat differently. It is this diversity that
provides the richness of insight
in these chapters. Our collaborative research approach is based
on our belief that when
dealing with complex and leading-edge issues, “everyone has
part of the solution.”
Every focus group, therefore, provides us an opportunity to
explore a topic from a
variety of perspectives and to integrate different experiences
(both successful and oth-
erwise) so that collectively, a thorough understanding of each
issue can be developed
and strategies for how it can be managed most successfully can
be identified.
ABoUT THE AUTHoRS
James D. McKeen is Professor Emeritus at the Queen’s School
of Business. He has been
working in the IT field for many years as a practitioner,
researcher, and consultant. In
2011, he was named the “IT Educator of the Year” by
ComputerWorld Canada. Jim has
taught at universities in the United Kingdom, France, Germany,
and the United States.
59. His research is widely published in a number of leading journals
and he is the coau-
thor (with Heather Smith) of five books on IT management.
Their most recent book—IT
Strategy: Issues and Practices (2nd ed.)—was the best-selling
business book in Canada
(Globe and Mail, April 2012).
Heather A. Smith has been named the most-published researcher
on IT management
issues in two successive studies (2006, 2009). A senior research
associate with Queen’s
University School of Business, she is the author of five books,
the most recent being IT
Strategy: Issues and Practices (Pearson Prentice Hall, 2012).
She is also a senior research
associate with the American Society for Information
Management’s Advanced Practices
Council. A former senior IT manager, she is codirector of the IT
Management Forum and
the CIO Brief, which facilitate interorganizational learning
among senior IT executives.
In addition, she consults and collaborates with organizations
worldwide.
xxi
ACKNowLEDGMENTS
The work contained in this book is based on numerous meetings
with many senior IT
managers. We would like to acknowledge our indebtedness to
the following individuals
who willingly shared their insights based on their experiences
60. “earned the hard way”:
Michael Balenzano, Sergei Beliaev, Matthias Benfey, Nastaran
Bisheban, Peter
Borden, Eduardo Cadena, Dale Castle, Marc Collins, Diane
Cope, Dan Di Salvo,
Ken Dschankilic, Michael East, Nada Farah, Mark Gillard, Gary
Goldsmith, Ian
Graham, Keiko Gutierrez, Maureen Hall, Bruce Harding,
Theresa Harrington,
Tom Hopson, Heather Hutchison, Jim Irich, Zeeshan Khan,
Joanne Lafreniere,
Konstantine Liris, Lisa MacKay, Mark O’Gorman, Amin
Panjwani, Troy Pariag,
Brian Patton, Marius Podaru, Helen Restivo, Pat Sadler, A. F.
Salam, Ashish
Saxena, Joanne Scher, Stewart Scott, Andy Secord, Marie Shafi,
Helen Shih, Trudy
Sykes, Bruce Thompson, Raju Uppalapati, Len Van Greuning,
Laurie Schatzberg,
Ted Vincent, and Bond Wetherbe.
We would also like to recognize the contribution of Queen’s
School of Business
to this work. The school has facilitated and supported our vision
of better integrat-
ing academic research and practice and has helped make our
collaborative approach
to the study of IT management and strategy an effective model
for interorganizational
learning.
James D. McKeen
Kingston, Ontario
Heather A. Smith
61. School of Business
June 2014
xxii
S e c t i o n i
Delivering Value with IT
Chapter 1 Developing and Delivering on the IT Value
Proposition
Chapter 2 Developing IT Strategy for Business Value
Chapter 3 Linking IT to Business Metrics
Chapter 4 Building a Strong Relationship with the Business
Chapter 5 Communicating with Business Managers
Chapter 6 Building Better IT Leaders from the Bottom Up
Mini Cases
■ Delivering Business Value with IT at Hefty Hardware
■ Investing in TUFS
■ IT Planning at ModMeters
2
C h a p t e r
1 Developing and Delivering on the it Value Proposition1
1 This chapter is based on the authors’ previously published
article, Smith, H. A., and J. D. McKeen.
“Developing and Delivering on the IT Value Proposition.”
62. Communications of the Association for Information
Systems 11 (April 2003): 438–50. Reproduced by permission of
the Association for Information Systems.
It’s déjà vu all over again. For at least twenty years, business
leaders have been trying to figure out exactly how and where
IT can be of value in their organizations. And IT managers have
been trying to learn how to deliver this value. When IT was
used mainly as a productivity improvement tool in small areas
of a business, this was
a relatively straightforward process. Value was measured by
reduced head counts—
usually in clerical areas—and/or the ability to process more
transactions per person.
However, as systems grew in scope and complexity,
unfortunately so did the risks. Very
few companies escaped this period without making at least a
few disastrous invest-
ments in systems that didn’t work or didn’t deliver the bottom-
line benefits executives
thought they would. Naturally, fingers were pointed at IT.
With the advent of the strategic use of IT in business, it became
even more difficult
to isolate and deliver on the IT value proposition. It was often
hard to tell if an invest-
ment had paid off. Who could say how many competitors had
been deterred or how
many customers had been attracted by a particular IT initiative?
Many companies can
tell horror stories of how they have been left with a substantial
investment in new forms
of technology with little to show for it. Although over the years
there have been many
improvements in where and how IT investments are made and
good controls have been
63. established to limit time and cost overruns, we are still not able
to accurately articulate
and deliver on a value proposition for IT when it comes to
anything other than simple
productivity improvements or cost savings.
Problems in delivering IT value can lie with how a value
proposition is conceived
or in what is done to actually implement an idea—that is,
selecting the right project and
doing the project right (Cooper et al. 2000; McKeen and Smith
2003; Peslak 2012). In
addition, although most firms attempt to calculate the expected
payback of an IT invest-
ment before making it, few actually follow up to ensure that
value has been achieved or
to question what needs to be done to make sure that value will
be delivered.
Chapter1 • DevelopingandDeliveringontheITValuePropo sition 3
This chapter first looks at the nature of IT value and “peels the
onion” into its
different layers. Then it examines the three components of
delivering IT value: value
identification, conversion, and value realization. Finally, it
identifies five general
principles for ensuring IT value will be achieved.
Peeling the OniOn: Understanding it ValUe
Thirty years ago the IT value proposition was seen as a simple
equation: Deliver the
right technology to the organization, and financial benefits will
64. follow (Cronk and
Fitzgerald 1999; Marchand et al. 2000). In the early days of IT,
when computers were
most often used as direct substitutes for people, this equation
was understandable,
even if it rarely worked this simply. It was easy to compute a
bottom-line benefit where
“technology” dollars replaced “salary” dollars.
Problems with this simplistic view quickly arose when
technology came to be
used as a productivity support tool and as a strategic tool.
Under these conditions,
managers had to decide if an IT investment was worth making if
it saved people time,
helped them make better decisions, or improved service. Thus,
other factors, such as
how well technology was used by people or how IT and
business processes worked
together, became important considerations in how much value
was realized from an IT
investment. These issues have long confounded our
understanding of the IT value prop-
osition, leading to a plethora of opinions (many negative) about
how and where technol-
ogy has actually contributed to business value. Stephen Roach
(1989) made headlines
with his macroeconomic analysis showing that IT had had
absolutely no impact on pro-
ductivity in the services sector. More recently, research shows
that companies still have a
mixed record in linking IT to organizational performance, user
satisfaction, productivity,
customer experience, and agility (Peslak 2012).
These perceptions, plus ever-increasing IT expenditures, have
65. meant business
managers are taking a closer look at how and where IT delivers
value to an organization
(Ginzberg 2001; Luftman and Zadeh 2011). As they do this,
they are beginning to change
their understanding of the IT value proposition. Although,
unfortunately, “silver bullet
thinking” (i.e., plug in technology and deliver bottom-line
impact) still predomi-
nates, IT value is increasingly seen as a multilayered concept,
far more complex than
it first appeared. This suggests that before an IT value
proposition can be identified
and delivered, it is essential that managers first “peel the
onion” and understand more
about the nature of IT value itself (see Figure 1.1).
What is it Value?
Value is defined as the worth or desirability of a thing (Cronk
and Fitzgerald 1999). It is
a subjective assessment. Although many believe this is not so,
the value of IT depends
very much on how a business and its individual managers
choose to view it. Different
companies and even different executives will define it quite
differently. Strategic posi-
tioning, increased productivity, improved decision making, cost
savings, or improved
service are all ways value could be defined. Today most
businesses define value broadly
and loosely, not simply as a financial concept (Chakravarty et
al. 2013). Ideally, it is tied
to the organization’s business model because adding value with
IT should enable a firm
to do its business better. In the focus group (see the Preface),
66. one company sees value
4 SectionI • DeliveringValuewithIT
resulting from all parts of the organization having the same
processes; another defines
value by return on investment (ROI); still another measures it
by a composite of key
performance indicators. In short, there is no single agreed-on
measure of IT value. As a
result, misunderstandings about the definition of value either
between IT and the busi-
ness or among business managers themselves can lead to
feelings that value has not
been delivered. Therefore, a prerequisite of any IT value
proposition is that everyone
involved in an IT initiative agree on what value they are trying
to deliver and how they
will recognize it.
Where is it Value?
Value may also vary according to where one looks for it
(Davern and Kauffman 2000;
Oliveira and Martins 2011). For example, value to an enterprise
may not be perceived as
value in a work group or by an individual. In fact, delivering
value at one level in an orga-
nization may actually conflict with optimizing value at another
level. Decisions about
IT value are often made to optimize firm or business proces s
value, even if they cause
difficulties for business units or individuals. As one manager
explained, “At the senior
67. levels, our bottom-line drivers of value are cost savings, cash
flow, customer satisfaction,
and revenue. These are not always visible at the lower levels of
the organization.” Failure
to consider value implications at all levels can lead to a value
proposition that is coun-
terproductive and may not deliver the value that is anticipated.
Many executives take a
hard line with these value conflicts. However, it is far more
desirable to aim for a value
What Value will be
Delivered?
Where will Value be
Delivered?
Who will
Deliver Value?
When will Value
be Delivered?
How will Value
be Delivered?
FigUre 1.1 IT Value Is a Many-Layered Concept
Chapter1 • DevelopingandDeliveringontheITValueProposition 5
that is not a win–lose proposition but is a win–win at all levels.
This can leverage overall
value many times over (Chan 2000; Grant and Royle 2011).
68. Who delivers it Value?
Increasingly, managers are realizing that it is the interaction of
people, information, and
technology that delivers value, not IT alone.2 Studies have
confirmed that strong IT
practices alone do not deliver superior performance. It is only
the combination of these
IT practices with an organization’s skills at managing
information and people’s behav-
iors and beliefs that leads to real value (Birdsall 2011; Ginzberg
2001; Marchand et al.
2000). In the past, IT has borne most of the responsibility for
delivering IT value. Today,
however, business managers exhibit a growing willingness to
share responsibility with
IT to ensure value is realized from the organization’s
investments in technology. Most
companies now expect to have an executive sponsor for any IT
initiative and some busi-
ness participation in the development team. However, many IT
projects still do not
have the degree of support or commitment from the business
that IT managers feel is
necessary to deliver fully on a value proposition (Peslak 2012).
When is it Value realized?
Value also has a time dimension. It has long been known that
the benefits of technol-
ogy take time to be realized (Chan 2000; Segars and Chatterjee
2010). People must be
trained, organizations and processes must adapt to new ways of
working, information
must be compiled, and customers must realize what new
products and services are
69. being offered. Companies are often unprepared for the time it
takes an investment to
pay off. Typically, full payback can take between three and five
years and can have at
least two spikes as a business adapts to the deployment of
technology. Figure 1.2 shows
this “W” effect, named for the way the chart looks, for a single
IT project.
Initially, companies spend a considerable amount in deploying a
new technology.
During this twelve-to-sixteen-month period, no benefits occur.
Following implementa-
tion, some value is realized as companies achieve initial
efficiencies. This period lasts
for about six months. However, as use increases, complexities
also grow. Information
overload can occur and costs increase. At this stage, many can
lose faith in the initia-
tive. This is a dangerous period. The final set of benefits can
occur only by making the
business simpler and applying technology, information, and
people more effectively. If
a business can manage to do this, it can achieve sustainable,
long-term value from its IT
investment (Segars and Chatterjee 2010). If it can’t, value from
technology can be offset
by increased complexity.
Time also changes perceptions of value. Many IT managers can
tell stories of
how an initiative is vilified as having little or no value when
first implemented, only
to have people say they couldn’t imagine running the business
without it a few years
later. Similarly, most managers can identify projects where time
70. has led to a clearer
2 These interactions in a structured form are known as
processes. Processes are often the focus of much orga-
nizational effort in the belief that streamlining and
reengineering them will deliver value. In fact, research
shows that without attention to information and people, very
little value is delivered (Segars and Chatterjee
2010). In addition, attention to processes in organizations often
ignores the informal processes that contribute
to value.
6 SectionI • DeliveringValuewithIT
understanding of the potential value of a project. Unfortunately,
in cases where antici-
pated value declines or disappears, projects don’t always get
killed (Cooper et al. 2000).
Clarifying and agreeing on these different layers of IT value is
the first step involved
in developing and delivering on the IT value proposition. All
too often, this work is for-
gotten or given short shrift in the organization’s haste to answer
this question: How will
IT value be delivered? (See next section.) As a result,
misunderstandings arise and tech-
nology projects do not fulfill their expected promises. It will be
next to impossible to do a
good job developing and delivering IT value unless and until
the concepts involved in IT
value are clearly understood and agreed on by both business and
IT managers.
71. the three COmPOnents OF the it ValUe PrOPOsitiOn
Developing and delivering an IT value proposition involves
addressing three compo-
nents. First, potential opportunities for adding value must be
identified. Second, these
opportunities must be converted into effective applications of
technology. Finally, value
12–16 Months
EVA
Time
Get the House
in Order
Harvest Low-
Hanging Fruit
Make the
Business
Complex
Make Business
Simpler
16–22 Months 22–38 Months 3–5 Years
FigUre 1.2 The ‘W’ Effect in Delivering IT Value (Segars &
Chatterjee, 2010)
Best Practices in Understanding IT Value
• LinkITvaluedirectlytoyourbusinessmodel.
72. •
Recognizevalueissubjective,andmanageperceptionsaccordingly.
• Aimforavalue“win–
win”acrossprocesses,workunits,andindividuals.
• SeekbusinesscommitmenttoallITprojects.
• Managevalueovertime.
Chapter1 • DevelopingandDeliveringontheITValueProposition 7
must be realized by the organization. Together, these
components comprise the funda-
mentals of any value proposition (see Figure 1.3).
identification of Potential Value
Identifying opportunities for making IT investments has
typically been a fairly
informal activity in most organizations. Very few companies
have a well-organized
means of doing research into new technologies or strategizing
about where these tech-
nologies can be used (McKeen and Smith 2010). More
companies have mechanisms
for identifying opportunities within business units. Sometimes a
senior IT manager
will be designated as a “relationship manager” for a particular
unit with responsi-
bility for working with business management to identify
opportunities where IT
could add value (Agarwal and Sambamurthy 2002; Peslak
2012). Many other com-
panies, however, still leave it up to business managers to
identify where they want
to use IT. There is growing evidence that relegating the IT
![Chapter 14: Whole Foods: 365 Degrees of Commitment to
Stakeholders: 14-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Alexis Crayton ([email protected])
© 2019 Cengage Learning, Cengage Learning
14-1 Introduction
In a period of time when green is on everyone’s mind, it seems
fitting to see Whole Foods’s distinctive green signs in
neighborhoods across the country. Beginning with its first
expansion in 1984, Whole Foods has grown domestically. In
2007 Whole Foods began opening stores in the United Kingdom.
The company has fueled its expansion by acquiring other food
chains as well. For instance, it acquired one of its largest
competitors—Wild Oats—in 2007. The company currently
operates 465 stores located throughout the United States,
Canada, and the United Kingdom. The firm has also been
elected as one of Fortune magazine’s Top 100 Companies to
Work For every year since the list was created in 1998.
Although customers are considered to be the company’s highest
valued stakeholder, Whole Foods adopts a stakeholder
orientation that focuses on the needs of all of its stakeholders,
including its employees and the community.
Whole Foods spearheaded efforts in the grocery industry to
source its food products responsibly and search for innovative
solutions to improve its environmental footprint. The company
emphasizes healthy living and seeks to contribute to the
communities where it does business. However, despite Whole
Foods ’ s significant accomplishments in business ethics, it has
not been free from criticism. In pursuit of growth, it has been
accused of running local stores out of business and received
mixed responses from some consumers. Other ethical issues
include antitrust investigations and questionable activity by
CEO John Mackey.
This case begins by providing brief historical background](https://image.slidesharecdn.com/chapter14wholefoods365degreesofcommitmenttostakeholders-220921043612-139438be/85/Chapter-14-Whole-Foods-365-Degrees-of-Commitment-to-Stakeholders-1-320.jpg)
![information on Whole Foods. Next, its mission and values are
examined, followed by a look at how the company strives to live
out its values to become a good corporate citizen. We also
consider ethical issues Whole Foods has faced to demonstrate
the complexity companies may experience when engaging in
ethical decision making. Finally, we examine some recent
challenges Whole Foods is facing as competition in the organic
food industry continues to increase.
Chapter 14: Whole Foods: 365 Degrees of Commitment to
Stakeholders: 14-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Alexis Crayton ([email protected])
© 2019 Cengage Learning, Cengage Learning
14-2 Company Background
In 1978 two entrepreneurs in their twenties used a $45,000 loan
to open a small natural foods store in Austin, Texas. John
Mackey and his then-girlfriend Rene Lawson Hardy wanted to
help people live better. At the time, there were fewer than a
dozen natural foods markets in the nation. The couple named
their business SaferWay as a spoof on Safeway. The
entrepreneurs had a rocky start. At one time they used the store
as a residence after being kicked out of their apartment for
storing food products. After two years Mackey and Hardy
agreed to merge SaferWay with Clarksville Natural Grocery,
owned by Craig Weller and Mark Skiles. The newly merged
company called itself Whole Foods Market.
The company continued to face challenges. Less than a year
after opening, a devastating flood hit Austin, wiping out Whole
Foods’s inventory. With no insurance and $400,000 in damages,
the company’s future looked dire. Yet with the help of the
community, the store reopened four weeks after the flood. In
1984 the company expanded into Houston and Dallas. Four
years later it acquired a store in New Orleans, followed by one
in Palo Alto, California, a year later. The company continued to
grow during the 1990s as Whole Foods merged with over a
dozen smaller natural groceries across the nation. Whole Foods](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)